Kindly help me with the names of two good debt mutual funds. Also, I wanted to know whether it would be beneficial to start an SIP in IT and technology funds like Tata India Digital Fund? What are the future prospects of this sector?
-Santosh
I feel that whenever you invest in mutual funds, the major part of your money shall be invested in a fund which has the flexibility to invest in any segment of the market. Only a small part of your money may be invested in a sector-specific fund for which you particularly feel that it would benefit in the coming years. Also, the funds in which you have already invested should not have a significant portion of that sector.
Whenever you invest in a sector specific fund, irrespective of whether it is a pharma fund, technology fund, banking fund or a consumer fund, the most negative part is that you give a limited mandate to the fund manager that he can invest only in the stated sector or segment of the market. Market is very cyclical. Sometime technology may perform very well and some time it may not. In a technology specific fund, even when the sector is not doing well or does not have good prospects the fund manager will be forced to invest in technology companies only. That is why, major part of your money should be diversified.
For fixed income, especially when you are investing for a short time period, you should not take a major risk. The basic options over there are liquid or ultra short-term funds. If you are investing for 1 to 2 years, you should not go beyond short duration funds. It is not advisable to take the risk of interest rate. Here, I would recommend you to choose the fund with less expense ratio and opt for a direct plan. Your returns would enhance in direct plans with less expense ratio.
If you are looking to invest in fixed income for medium to long term, then I would recommend you to invest in equity savings funds. Its tax treatment is of equity funds and invest only one third of the money in net equity. Here, if you have a horizon of 2 to 3 years, then the chances of loss are less. And it has the potential to beat the returns of fixed income. Two good options in this category could be Axis Equity Saver and HDFC Equity Savings Fund.
This article was originally published on August 28, 2018.
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